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As soon as a Chief Procurement Officer announces his/her title, people make general assumptions and statements, but one, in particular, stands out: "you're the purchasing gal/guy!"

It is a wide held belief and misconception that procurement is about purchasing (and vice versa). Any professional would tell you, procurement is so much more than placing an order for goods, products and services (for the need of a business).

Furthermore, procurement is a complete process which also includes everything from conducting market research to enforcing ethical standards.

Professionals (who of course are weary of such shortsightedness about their jobs) might also contribute to this general confusion.

How?

Well, they've come to be heavily reliant (and have established a claustrophobic focus) on cost and risk management as their primary tools for all procurement activities.

Again, I feel like another disclaimer is well in order, so here it is: cost and risk are crucial principles for CPOs.

Any bargain or savings obtained at any stage of the procurement process is a huge win for any company - it snowballs into major profits.

The risk management aspect of the equation is one that helps companies avoid compromising dealings, develop poor reputations and run afoul of legislation protocols.

Despite the aforementioned benefits, things quickly take a different turn when these two concepts are contextualised in today's business climate.

As any Chief Procurement Manager would tell you, their role has changed fundamentally in recent times.

With the accelerated rate of innovation (resulting in increased goods and services), CPOs are doing way more than just conducting modest cost and risk analysis, no, they now have to contend with the challenging effects of globalisation which previous (20th-century) procurement professionals never had to deal with.

In other words, CPOs today have to adopt a broader perspective - specifically, by putting risk and cost in a wider context.

Let's use Corporate Social Responsibility as an example to drive home this point.

19th or 20th-century companies didn't have to deal with the weighty responsibilities of incorporating sustainable policies into their business operations - it was all about profits - and consumers weren’t holding these companies socially accountable.

In contrast, the modern day prosumer (who will not accept the business-as-usual rules), now have to make sure that they are conducting their operations in ethical and responsible ways.

These CSR initiatives - which affect everyone including suppliers - come at a cost; expenses that CPOs have to consider carefully.

This is just one of many other examples that illustrate the changing relationships CPOs have with cost and risk management.

So, to answer the question - risk vs. costs: which is more important for a CPO?

I'll have to say both are equally important, but they should be seen in progressive terms.

 

Written by Pip Spibey-Dodd @Locomote

 

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